It is not the first time that inheritance tax has concerned the judges in Karlsruhe. And it should be exciting again. Before Tuesday's discussion is about tax privileges for company heirs, today the focus is on a lawsuit from the Free State of Bavaria.
Why is Bavaria suing against inheritance tax?
The Bavarian Prime Minister Markus Söder (CSU) has his own idea for inheritance tax: "We regionalize the inheritance tax, then the SPD states can massively increase it - and we can reduce it," said Söder in the ARD summer interview. Politically he had no success with this proposal.
Now the Bavarian state government in Karlsruhe is trying it. It attacks the inheritance tax law with the obvious aim of putting inheritance tax in the hands of the states. One argument: The federal government is not responsible at all. The taxes go entirely to the states anyway, so it would only be right if the states also raise this tax themselves.
Bavaria also considers the amount of allowances for inheritances to be unconstitutional. Spouses can bequeath tax-free up to 500,000 euros and children up to 400,000 euros. Against the background of increased prices and rising property values in Bavaria, it is unfair that these allowances have remained the same for 16 years and are not adjusted regionally. The claim: Children would have to sell their parents' house in order to be able to pay the high tax burden.
How does the other side argue?
In addition to representatives of the Federal Ministry of Finance, the Green Party parliamentary group is also campaigning against the Bavarian lawsuit. They commissioned the Göttingen law professor Florian Meinel to give a statement. He says: A "regionalization" of the inheritance tax would lead to a "ruinous tax competition" between the states, the winners and losers of which are already clear: Wealthy federal states like Bavaria could afford a reduction in inheritance tax in order to attract wealthy families in the long term, while poor federal states would probably have to increase inheritance taxes due to the departure of financially strong taxpayers - which would only increase the departure.
Meinel also believes that the scenario of the "parental home", which would have to be sold due to a supposedly overwhelming tax burden, is not realistic: If it continues to be inhabited by children or surviving spouses, no inheritance taxes would be due under current law.
What will be negotiated on Tuesday?
On the second day of negotiations, the focus is on tax privileges for company heirs. They are regulated in the Inheritance and Gift Tax Act and mean that, under certain conditions, heirs of a company pay significantly less inheritance tax and sometimes even no inheritance tax at all. So it's about exceptions to this tax that benefit business assets.
The crux of the matter: There are no comparable privileges, especially when it comes to private assets. The core of the negotiation on Tuesday is therefore the question: Are the benefits when inheriting business assets compatible with the Basic Law? The most important thing is whether the rules are in line with the general principle of equality in the Basic Law.
What does the plaintiff claim?
The plaintiff inherited private assets from his aunt. The estate included, among other things, a securities account and land. These private assets were subject to inheritance tax. He did not benefit from inheritance and gift tax benefits because the inheritance was private assets. The plaintiff found this unfair and sued. He says: Company heirs are being given preferential treatment over him and that is unconstitutional.
How was the privileging of business assets last assessed?
The Federal Constitutional Court has already ruled on inheritance tax several times: in 1995, 2006 and most recently in 2014. In their 2014 ruling, the judges stated: The privileging of very large business assets was not acceptable in its former form. The legislature is allowed to largely or completely exempt small and medium-sized companies from inheritance tax in order to secure their existence and thus also to preserve jobs. But for larger companies, a so-called needs test must take place.
In order to comply with the requirements of the Federal Constitutional Court, the legislature made certain adjustments in 2016. Since then, there has been, among other things, the option of a so-called exemption requirement test, which applies to business assets of more than 26 million euros. If this regulation applies, the heir does not have to pay taxes. To do this, he must prove that he is unable to pay the tax from his available assets - i.e. from the money he currently has in liquid form.
The following applies to smaller companies: If the company continues to operate for at least five years and wages do not fall too much, 85 percent remains tax-free. However, it may also be the case that in these cases no inheritance tax has to be paid at all: namely if the company is held for seven years.
What impact could a ruling have on politics?
Political Berlin will also look to Karlsruhe. Because: Inheritance tax is one of the controversial topics within the black-red coalition. While the Union wants to wait for the Federal Constitutional Court's ruling, the SPD has been pushing for reforms for a long time.
Only recently, SPD General Secretary Tim Klüssendorf told the Rheinische Post: "It simply cannot be the case that small and medium-sized inheritances are heavily taxed, while billionaire families can pass on their assets in Germany almost tax-free by using existing legal loopholes."
As a result of the proceedings at the Federal Constitutional Court, the political debate is likely to gain momentum again. However, a verdict is not expected to be announced for a few months.
